Most people seem to think that intra-African trade could be substantially larger than it currently is. This would explain the recent statement of the heads of the African Union to “boost” intra-African trade substantially and to create an Africa-wide Free Trade Area by 2017.
A week hardly goes-by without one or more international investors announcingmajor investment interests in Nairobi, or other African capital cities.
Nokia, Nestle, and IBM are some of the companies which intend to position themselves more strongly in (East) Africa. True, their investments may still be low by international standards, but they are increasingly becoming noticeable.
On a macroeconomic level, the new Africa momentum has also been evident. Africa has weathered both the global financial crisis, and the turbulence in the Euro zone. According to World Bank’s latest economic outlook, Sub-Saharan Africa is projected to grow above 5 percent in 2012 and 2013. This would be higher than the average of developing countries (excluding China), and substantially, above growth in high-income countries. This means that at some point in this decade, Africa could grow above the levels of Asia. A few years ago, it would not have been possible for economic observers to consider such a scenario. Once Africa becomes the fastest growing continent in the world; this will also be the true turning point for Africa’s global perception.
UPDATE (May 15th, 2012) Caroline Freund, World Bank Chief Economist for the Middle East and North Africa has joined the debate. See her remarks.
The Chief Economists of all the regions where the World Bank implements programs got together recently to exchange thoughts about the current state of development economics.
You can read a summary of our views related to Africa, South Asia, and Europe and Central Asia here.
And we hope you can participate in this debate by sharing your own views via the comments section below.
Optimism about Africa’s future is no longer scarce. The continent’s growth has been exemplary in recent years. Yet it is just as easy to find signs of distrust in the global economy.
Multilateral agencies insist that international integration offers opportunities for accelerating economic growth. Official parlance has become tame since the heyday of structural reforms in the early 1990s, but they have found subtle ways to argue that trade is good. The World Bank recently launched “Defragmenting Africa,” providing an exhaustive and exhausting list of policies to increase international trade within the continent.
Unsurprisingly the prescriptions can be costly. Removing import taxes might improve economic efficiency and enhance consumer welfare, but revenues can fall in countries with limited public resources. Although Africa harbors some of the highest trade taxes in the world (World Development Report 2009), the point is that there are tradeoffs. The same applies to policies that entail investments in infrastructure for “trade facilitation.”
What would Africa get in return?
Over half the countries in Sub-Saharan Africa subsidize fuel to protect consumers from high and volatile prices. But fuel subsidies are neither cheap nor likely to be sustainable (see the full analysis in the new Africa's Pulse).
Data for 2010-11 show that fuel price subsidies consumed, on average, 1.4 percent of GDP in public resources: The fiscal cost in oil exporters was almost two-and-a-half times that in oil importers. In the face of high (and rising) world fuel prices, a number of countries have raised domestic prices to stem fiscal costs.
For example, Ghana raised fuel prices by about 30 percent in January 2011. The Nigerian government removed the subsidy on gasoline this January, although a portion of the subsidy was subsequently reinstated. With oil prices likely to remain elevated, fuel subsidies will continue to weigh on government budgets in Africa.
But who benefits from fuel price subsidies?
Expenditure data for seven African countries show that the distribution of these subsidies is disproportionately concentrated in the hands of the rich. Richer households spend a larger amount on fuel products, and, consequently, benefit more than poorer households from any universal subsidy on these products. On average the richest 20% receive over six times more in subsidy benefits than the poorest 20%.
Can Africa claim the 21st century? When the World Bank’s Africa department published this book in April 2000, most observers were doubtful that African countries would ever be in a position to become emerging markets. That year, The Economist called Africa “The hopeless continent” and global attention was focused mainly on Africa’s problems: HIV/Aids in Southern Africa; the relentless war in Somalia; and, droughts in the Sahel—which gave the pessimists plenty of ammunition.
But over the last several years, something remarkable has happened: Africa’s fragile and conflict-affected countries remain a major development challenge, but besides these, a Stable Africa has emerged. Most of this Stable Africa has experienced continued high growth for a decade, and major improvements in social indicators. Africa is becoming an investment destination, and there is hardly a week which goes by without a major investor dropping by my office, to discuss the region’s economic fundamentals.
How has Africa changed over the last decades?
This piece was co-authored with Günther Schulze1.
Kenya may have found oil in Turkana that could change the development trajectory for the country. In 2011, Kenya spent US$ 4.1 billion on oil imports, equivalent to approximately 100,000 barrels per day. For Kenya to become a net oil exporter, the resources in Turkana would need to be substantial and similar to those of Sudan or Chad.
If indeed Kenya has substantial oil reserves, will they benefit the country in the long-term?
Some observers are predicting similar problems as in Nigeria, Equatorial Guinea and many other resource-rich African countries where corruption has been amplified.
Others argue that this need not be the case. Countries as diverse as Botswana, Chile and Norway have shown that natural resources can be a blessing. If managed well, they can even support the fight against poverty by providing the resources needed to scale up the delivery of public services. In the last ten years, many of the world’s fastest growing economies, including in Africa, have benefitted from exporting natural resources.
So who should we believe?
Sub-Saharan Africa produces more than 50 percent of the world’s cassava (aka manioc, Tapioca, and Yucca), but mainly as a subsistence crop. Consumed by about 500 million Africans every day, it is the second most important source of carbohydrate in Sub-Saharan Africa, after maize. The leaves can also be consumed as a green vegetable, which provides protein and vitamins A and B. As an economy advances, cassava is also used for animal feed and industrial applications.
Described as the “Rambo of food crops” cassava would become even more productive in hotter temperatures and could be the best bet for African farmers threatened by climate change.
Cassava is drought resistant, can be grown on marginal land where other cereals do not do well, and requires little inputs. For these reasons it is grown widely by African small and poor farmers as a subsistence crop. However, cassava’s potential as an income-earning crop has not been widely tapped.
Cassava presents enormous opportunities for trade between areas with food surplus and food deficit. Currently, a large shortfall of the regional food supply is filled by cereals bought in the international market. For cassava to become an income-earning crop at intra-regional market for small farmers in Africa, two main obstacles remain: post-harvest processing and regional trade barriers.
South Africa appears to be mired in a cycle of modest growth, high inequality and record unemployment. This, despite an exemplary record on macroeconomic management and deepening integration with the global economy.
Inflation remains nestled within the target range of 3-6 percent and fiscal and debt management outcomes have been impressive.
Remarkably, there is broad political consensus on the issue of macroeconomic stability, recent calls for a looser stance by the labor unions notwithstanding.
A sustained pattern of high, broad-based and inclusive growth is yet to emerge, however. Despite a pick-up in per capita GDP growth from negative rates to an average of 1.6 percent per year during 1994-2011, per capita GDP is currently only 10 percent higher than in 1980: a period over which other developing countries have seen much more meaningful increases in their income levels.
When I first came to Kenya, in August 1990, I was a backpacker on a shoestring budget. At midcourse between Cape-town and Cairo, I got accommodation at the New Kenya Lodge in River Road for US$ 2.50. After spending two nights there, I continued to Garissa and Liboi, heading to Somalia.
In 1994, I returned with my wife, and in downtown Nairobi, urban chaos and poverty struck her so much, that she was reluctant to come back 15 years later, when I was offered a job.
Today, I enjoy the full beauty of Kenya with my family, and we all agree—my wife included!—that this is one of the most beautiful countries in the world. If you created an index of "natural beauty per square-kilometer" Kenya would probably come up on top of the list. Starting from Nairobi, within a few hours of driving, you enjoy the most amazing nature: the Masai Mara, Mt Kilimanjaro, Mt Kenya, and Lake Victoria, are all within reach. Nairobi is surprisingly pleasant, with one of the best climates in the world: it is one of the few cities where you neither need air-conditioning nor heating—all year long (well, it will soon get “cold” in July but the fireplace will help).